Top 7 Way to Avoid a Business Failure

What is the business survival rate? Statistically, roughly 66 percent of new businesses survive two years or more, 50 percent survive four years or more, and 40 percent survive six years or more, according to the study “Redefining Small Business Success” by the U.S. Small Business Administration. Further, companies that have employees (instead of one-man shops), college-educated owners, and those that have good financing tend to survive longer. Also supported by the numbers in the study, manufacturers overall have a better chance of staying alive compared to service and retail firms. With this information as a backdrop, I’ve compiled a list of 7 causes of failure from personal experience and informal discussions with local business owners. Hopefully, we can learn what not to do and increase our odds of survival!

1. Failure to understand your market, your customers, and your customers' buying habits. Two easy questions: Who are your customers? And why do they spend their money with you? You should be able to clearly answer in one or two sentences. Customers are the only people that put money in your account. Without them, you will not survive.
   
   
2. Failure to understand and communicate what you are selling. You must clearly define your value proposition. What do you do that can help or benefit me? Once you understand it, ask yourself if you are communicating it effectively. Does your market connect with what you are saying?
   
   
3. Inadequate financing. Cash is king. If you don't have enough cash to carry you through the sales cycles and downward trends, your prospects for success are not good. When businesses go looking for lenders to provide that cash, they quickly find that funding sources are finicky and difficult to please.
   
   
4. Failure to anticipate or react to competition, technology, or other changes in the marketplace. It is dangerous to assume that what you have done in the past will always work. Challenge the factors that led to your success. Do you still do things the same way despite new market demands and changing times? What is your competition doing differently? What new technology is available? Those who fail to do this end up obsolete.
   
   
5. Overdependence on a single customer. Pay attention to your revenue sources. If you have a customer that is providing a majority of your income, ask yourself what would happen if they left or went out of business. Where would you be? Whenever you have one customer so big that losing them would mean closing up shop, watch out. Having a large base of small customers is a safer beat.
   
   
6. Failure to define your product/service offering. Trying to do everything for everyone is a sure road to failure. Spreading yourself too thin diminishes quality. The market pays excellent rewards for excellent results. Excellent results come from doing what you do and doing it well over and over again.
   
   
7. Poor management. Management of a business encompasses a number of activities: planning, organizing, controlling, directing and communicating. The cardinal rule of small business management is to know exactly where you stand at all times. A common problem faced by successful companies is growing beyond management resources or skills.

Erica Olsen (erica@m3planning.com) is a principal of M3 Planning, making strategy a reality for growth-oriented organizations. Her company runs MyStrategicPlan, an online strategic planning software for business owners, executive directors, and department managers. Specifically designed for organizations with less than 150 employees, MyStrategicPlan is a cost-effective, do-it-yourself solution for anyone who wants to develop and execute their business strategy. Her company also offers strategic planning consulting, facilitation, articles, and assessment tools. She is also the author of the upcoming book Strategic Planning For Dummies.